Tsinghua Unigroup, a technology conglomerate affiliated with China’s top university, is moving closer to bankruptcy restructuring after years of debt-fuelled acquisitions in the semiconductor industry, kicking off a potential scramble for its assets by creditors and other interested parties.
Two Shenzhen-listed subsidiaries, information technology infrastructure provider Unisplendour Corp and integrated circuits designer Unigroup Guoxin Micro, announced in separate filings last week that their ownership structure could change after state-owned Huishang Bank, a creditor of Unigroup, asked a Beijing court to start bankruptcy proceedings against the company.
Unigroup, which had either defaulted or had cross-defaults triggered on seven onshore and offshore bonds worth about US$3.6 billion as of January, is left with no other options but to sell assets to pay off more than 200 billion yuan (US$30.8 billion) in total liabilities.
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The company, according to a Reuters report last week, is trying to sell its 46.45 per cent stake in Unisplendour to potential investors, including Alibaba Group Holding and several state-backed entities. Neither Unisplendour nor Alibaba, owner of the South China Morning Post, could confirm or deny these talks.
Bankruptcy restructuring represents a big fall for Beijing-based Unigroup, which was once seen as a major player in the country’s efforts to boost semiconductor self-reliance amid the escalating US-China tech war.
Unigroup, known for its unsuccessful US$23 billion bid for US chip maker Micron Technology in 2015, is not expected to have a solvency issue, according to a recent report from Pacific Securities. It said investors crave the company’s high-quality semiconductor assets amid the country’s drive to build up its capabilities in the industry.
Still, Unigroup is expected to delay any asset sale if its liquidity condition permits, according to Gary Ng, economist for the Asia-Pacific region at the Hong Kong office of French investment bank Natixis.
“Tsinghua Unigroup had paid huge premiums in [its] past acquisitions and it may be hard to fully recover the amount if the assets are put on sale,” Ng said on Monday. “Compared to peers, Tsinghua has a higher goodwill at close to 20 per cent of total assets, showing the series of deals comes with heavy cost versus book value at the time of purchase.”
Unigroup’s attractive portfolio of assets includes its shareholding in semiconductor design firm Unisoc, China’s fifth-largest smartphone chip provider, and Yangtze Memory Technology Co (YMTC), the country’s top memory chip maker.
Unigroup, headed by chairman Zhao Weiguo and driven by debt-funded acquisitions, expanded its operations over the past decade to become a global semiconductor powerhouse.
After securing 10 billion yuan from the state-backed China Integrated Circuit Industry Investment Fund (Big Fund) in 2015, Zhao was said to have attempted to buy the world’s largest contract chip maker Taiwan Semiconductor Manufacturing Co. That audacious bid prompted Terry Gou Tai-ming, the billionaire founder and chairman of Foxconn Technology Group, to deride Zhao as “a stock flipper”.
Also in 2015, Unigroup acquired a 51 per cent stake in network equipment supplier H3C Technologies from Hewlett-Packard for US$2.3 billion. In 2016, Unigroup teamed up with the government of central Hubei province and China’s Big Fund to establish YMTC, a challenger to South Korean memory chip makers Samsung Electronics and SK Hynix.
Unigroup had earlier privatised two US-listed tech companies, Spreadtrum Communications and RDA Microelectronics, in 2013 and 2014, respectively. These firms were merged in 2018 to become Unisoc.
Unigroup, with a total of 286 subsidiaries on its books at the end of June last year, started experiencing debt repayment pressure last summer. It had 202.9 billion yuan in liabilities at the time, according to the company’s 2020 first-half debt report.
In December, it failed to repay the principal on a US$450 million bond that was due that month. It marked the first US dollar default by a Chinese chip maker, as concerns continued to grow about debt levels on the mainland and a series of defaults by state-backed companies.
That followed its failure to repay an onshore bond worth 1.3 billion yuan in November, which led to a downgrade by China Chengxin Credit Rating Group and a suspension of trading of its debt in Hong Kong.
Introducing outside investors may be a better option for Unigroup, but the uncertainties surrounding its liabilities are a major obstacle, according to Natixis economist Ng.
“It is hard to predict whether a white knight will suddenly arrive before the restructuring, but we have not seen one so far,” Ng said.
“In this sense, the filing for restructuring process is indeed positive for Unigroup to reduce its debt burden and clear the uncertainties if a deal is reached with creditors. Once the restructuring process is completed, it will be much easier for Unigroup to seek outside investors.”
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